Paying into Public Sector pension + AVC: Advice on strategy?

bitofatit

As a Public Sector worker I am paying into a Final Salary scheme and AVC's. I will take early retirement shortly.

Main question is if I retire early do I HAVE to take my AVC at the same time as my Public Sector pension which will be paid when I go and what if I don't?


I wondered if I could let the AVC ride and start using it in later years. Main reason is that I was thinking to use the lump sum element to pop it straight into an NISA. But for me it would be a timing think as my ISA is used this year and I would need to go into another tax year.

Lastly I randomly saw this quote on the PRU website which seems to answer my question?

"Additional Voluntary Contributions (AVCs) offer you choice and control. So long as you take your AVCs at the same time as your LGPS benefits" It doesn't go on to say what if you don't. I'm confused!

hyubh

bitofatit wrote: »

As a Public Sector worker I am paying into a Final Salary scheme

What scheme? They are all different.

Lastly I randomly saw this quote on the PRU website which seems to answer my question?

Even if your scheme is the LGPS, Prudential are just an AVC provider some LGPS funds use, and they want to sell you something (which isn't to say their marketing statements would lie, just express matters in a certain way).

bitofatit

Thanks for the response - It is LGPS. And the message on the tin seems to be that I can take the 25% cash lump sum from the AVC bit and take all the LGPS as pension. Seems good to me.

But I wondered what happens (If this is permissible I mean) If I take the LGPS in full and the AVC in (say) 2 years time for example when I could take that then as the 25% for the two 'pots' and then get it into an NISA - If that makes sense?

Your_Hero

bitofatit wrote: »

Thanks for the response - It is LGPS. And the message on the tin seems to be that I can take the 25% cash lump sum from the AVC bit and take all the LGPS as pension. Seems good to me.

But I wondered what happens (If this is permissible I mean) If I take the LGPS in full and the AVC in (say) 2 years time for example when I could take that then as the 25% for the two 'pots' and then get it into an NISA - If that makes sense?

"Unless you are taking flexible retirement, the AVC must be taken at the same time as your main scheme benefits."
http://www.pru.co.uk/rz/localgov/england-wales/avcs/taking-your-benefits/

Also: http://www.pru.co.uk/pdf/LAVK0846.pdf
For All other AVC members (not in England & Wales)
You can draw your AVC benefits at the same time as your main scheme benefits or you may defer taking your AVC benefits for any length of time up to the eve of your 75th birthday.

jem16

bitofatit wrote: »

Thanks for the response - It is LGPS. And the message on the tin seems to be that I can take the 25% cash lump sum from the AVC bit and take all the LGPS as pension. Seems good to me.

That will not happen if you are a member of the pre 2007(or 2008) scheme where there is an automatic lump sum. LGPS doesn't do inverse commutation so you have to take the lump sum from the main scheme too.

Drp8713

You can defer your AVC, however if you take your AVC at the same time as the rest of your benefits you can usually take it all as a tax free lump sum so long as it's within 25% of the capital value of all of your benefits. You can also use it to buy added pension and possibly added years.

If you defer your AVC but take your main benefits you will the only be able to take 25% of the AVC fund as tax free cash as opposed to potentially 100%. You will also have to use the remaining 75% to buy an annuity with the provider or on the open market instead of being able to buy LGPS pension or years.

taktikback

Presumably, an annuity will not be necessary due to the reforms, but you would have to pay tax at your marginal rate?

Drp8713

LGPS AVC providers do not offer drawdown. You may be able to transfer the remaining 75% to a SIPP and enter drawdown I don't know. I am not too sure of the rules on this as you will already have crystallised the whole AVC to have taken the 25% so I guess phased drawdown would not be possible. I am sure somebody more knowledgeable in personal pensions can confirm.

bitofatit

Wow - thanks for the helpful advice. I joined the scheme in 2010 I think. So I think I can take the 25% lump sum from the AVC and have the benefit of a bigger LGPS Pension.

TBH I'm being made redundant so I think they pay the pension at the full rate rather than reduced - thank you public sector!

I was wanting to take as much cash as I can and jam it in an ISA and the balance join this pot up to other pots and do a some kind of a draw down arrangement rather than an annuity. Hoping that is the case.

Is it worth considering using any residue from the AVC for added years. As I say, I'm being made redundant (late 50's) am in good health and will probs live till 100+ :j

Your_Hero

Drp8713 wrote: »

LGPS AVC providers do not offer drawdown. You may be able to transfer the remaining 75% to a SIPP and enter drawdown I don't know. I am not too sure of the rules on this as you will already have crystallised the whole AVC to have taken the 25% so I guess phased drawdown would not be possible. I am sure somebody more knowledgeable in personal pensions can confirm.

You can't do that with the AVC if it doesn't support drawdown, i.e. you can't take the 25% and then decide what to do with the 75% later. Most AVCs only offer the basic option of annuity and/or lump sum. You'd need to transfer to a provider who can facilitate this. However, with the new Pension freedom rules next April, there is a suspected "third option" for withdrawals so this may be possible but we are still waiting to find out.

hyubh

bitofatit wrote: »

Is it worth considering using any residue from the AVC for added years.

Won't be possible. (You joined after new added year contracts were abolished.)

I was wanting to take as much cash as I can and jam it in an ISA

If you mean a cash ISA, I don't understand this strategy.